The significant benefits of trading as a limited company are that the owner and the business are fenced off from each other. This clarifies things for all concerned and protects both from each other. It may be likened to a business attaining its majority and being granted independence.
A business registered as a limited organization gains a legal identity. Its name is protected by law but it also has the obligation to meet its debts and other liabilities. These liabilities that become the responsibility of the business fall into different categories.
Current liabilities are the obligations that must be met within a short period of time. Such short term financial obligations will include the salary bill and utility expenses. A solvent company must be able to meet these obligations first before facing long term liabilities.
Long term liabilities may include things such as mortgages or taxes that are owed to the government although immediate payment may be deferred for some time. Obviously a long term liability may be so large that it cannot be paid immediately but over a long period of time, in instalments.
Sometimes a firm will incur contingent liabilities. As the name implies these are debts that may fall due when a set of circumstances falls into place. For example, in import and export activities the precise amounts due may vary according to future foreign exchange movements. Once again it is the firm and not the owners or members of the firm who are responsible for these liabilities.
A growing business will reach a milestone when it begins to benefit from trading as a limited company. In assuming responsibility for its own liabilities it also attains independence. Its name is its own and it has an identity for life, that is separate from the identity of its owners. Suppliers and clients will be able to trade with it in its own right even after its owners may have died or sold out.
A business registered as a limited organization gains a legal identity. Its name is protected by law but it also has the obligation to meet its debts and other liabilities. These liabilities that become the responsibility of the business fall into different categories.
Current liabilities are the obligations that must be met within a short period of time. Such short term financial obligations will include the salary bill and utility expenses. A solvent company must be able to meet these obligations first before facing long term liabilities.
Long term liabilities may include things such as mortgages or taxes that are owed to the government although immediate payment may be deferred for some time. Obviously a long term liability may be so large that it cannot be paid immediately but over a long period of time, in instalments.
Sometimes a firm will incur contingent liabilities. As the name implies these are debts that may fall due when a set of circumstances falls into place. For example, in import and export activities the precise amounts due may vary according to future foreign exchange movements. Once again it is the firm and not the owners or members of the firm who are responsible for these liabilities.
A growing business will reach a milestone when it begins to benefit from trading as a limited company. In assuming responsibility for its own liabilities it also attains independence. Its name is its own and it has an identity for life, that is separate from the identity of its owners. Suppliers and clients will be able to trade with it in its own right even after its owners may have died or sold out.
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Learn more about company formation via the Web and the advantages of trading as a Limited company now in our comprehensive overview of companies house company formation
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